Finding the right high interest savings account

Rising living costs mean it’s more important than ever for savers to make sure they are earning as much interest as possible.

Higher food, fuel and air fares pushed inflation, as measured by the Consumer Prices Index (CPI), to 1.6pc in December. Finding savings accounts which keep pace with inflation can be a real challenge for savers given current rock-bottom interest rates.

Less than 7pc fixed or variable accounts match or beat the current rate of inflation, according to research by independent savings advice website SavingsChampion.co.uk, but seeking out the best rates can mean the difference of earning just a few pennies in interest every year or many more pounds.

For example, someone with £100,000 in either HSBC’s Flexible Saver or Clydesdale Bank’s Instant Savings Account, which pay just 0.01pc annual interest, would earn £10 a year in interest on their savings.

Move your money into a fixed rate bond

If, however, they move those funds into one of the best five-year fixed rate bonds from Ikano or Atom banks paying 2.05pc a year, their savings would earn £2,050 gross interest before tax is deducted.

Anna Bowes, director of independent savings advice site Savings Champion, says: “Savers have never had it so tough, and whilst there are rumblings of a possible base rate rise, we don’t know if or when this will happen.

“In the meantime, savers need to vote with their feet in order to make their cash work as hard as it can. They shouldn’t accept the shockingly low rates that some providers are offering – instead they need to shop around for the best rates.

“High interest current accounts still offer the best rates albeit on smaller balances and with more terms and conditions, and can be a valuable source of extra interest.”

“The good news is that there are still some providers who do want savers’ money, so they are battling it out in the best buy tables. These are often the lesser known challenger banks such as RCI Bank and Charter Savings Bank but some more established building societies are also getting in on the action, such as Leeds Building Society and West Brom Building Society.

Savers need to use all the tools in their armoury to get the most from their cash which could mean using High Interest Current Accounts, and fixed rate products to get the best rates available now, as well as the best easy access accounts for flexibility to take advantage of better rates if they appear.”

High interest current accounts

For example, Nationwide’s Flexdirect account pays 5pc interest a year on balances up to £2,500, while TSB’s current account pays 3pc on balances up to £1,500. Nationwide’s 5pc rate only applies for the first 12 months. After that the rate reverts to 1pc, at which point you may want to switch accounts again.

Saving accounts for children

Children often fare better than adults when it comes to savings accounts paying competitive returns, with Halifax’s Kids’ Regular Saver account paying 4pc on monthly contributions between £10 and £100.

Alternatively, if you want an account where you can hold a bigger balance for your children, Nationwide Building Society’s Smart Limited Access 2 account pays 2.25pc on balances up to £50,000.

Easily protect and keep track of your savings interest

If you find it hard to keep track of how much interest your savings are earning, Savings Champion offers a concierge cash service which tracks the best rates in the savings market on your behalf and advises when you should move your money.

Funds can be spread over as many providers as necessary to ensure your savings are protected by the Financial Services Compensation Scheme (FSCS). This provides compensation of up to £85,000 per person per banking licence if your savings provider runs into financial difficulties.